Agribusiness ETFs And The Drought of 2012

With extreme heat and limited rainfall since June, agriculture commodity ETFs have pole-vaulted over key trendlines.

NEW YORK ( ETF Expert) -- According to the U.S. Census Bureau and a variety of institutions that study human population growth, the world will need to feed roughly 70 million new mouths every year. That is the current "net" projection when births are offset by deaths.

Pundits from Marc Faber to Jim Rogers have talked about the demographic changes. Their solution? Invest in agriculture. Faber tends to talk more about investing directly in farmland as a hedge against social unrest. Rogers tends to discuss the benefits of owning all commodities, though often raises awareness about the benefits of farmland and the agricultural grains produced there.

Yet, prior to this year's epic summer drought, agricultural commodities had not been kind to exchange-traded enthusiasts. In fact, owning PowerShares DB Agriculture ( DBA) seemed like an exercise in futility.

There have been scores of reasons provided for the investing losses, including the recession in Europe and the slowdown in China. Many more folks point to the fact that commodities are priced in U.S. dollars and that the dollar's strength has added to commodity price depreciation.

On the other hand, with extreme heat and limited rainfall since June, agriculture commodity ETFs have pole-vaulted over key trendlines. The current price of DBA is well above a 50-day and 200-day moving average.

The question that ETF investors need to ask themselves at this point is whether or not the bad news on crop output has been accounted for in the current prices.

Exchange-traded notes and funds for soybeans, wheat and corn have been on a remarkable upswing, yet it is rare of any investment to be 33% above a 200-day trendline . Indeed, iPath DJ Grains ( JJG) currently sits 33% above its 200-day.

On the other hand, regardless of agriculture commodity price appreciation, or even the possibility of a pullback, the corporations that are involved in helping farmers may be poised to pop. There will be greater demand for fertilizer, seeds and equipment. In fact, one could see a sustainable recovery for agribusiness stocks like Monsanto ( MON) and Deere ( DE).

Enter the Agribusiness ETFs. Market Vectors Agribusiness ( MOO) as well as IndexIQ Small Cap Agribusiness ( CROP) both have an opportunity to do well in the current environment.